It has been about a month since the last earnings report for Qorvo (QRVO). Shares have added about 14.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Qorvo due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Qorvo Q4 Earnings Beat Estimates, Revenues Rise Y/Y
Qorvo Inc. reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.57 per share, which increased 28.7% on a year-over-year basis. The figure surpassed the Zacks Consensus Estimate by 18.9%. However, earnings declined 15.6% sequentially.
Revenues on a non-GAAP basis fell 9.4% sequentially but increased 15.7% year over year to $787.8 million.
The results can be attributed to improvement in Infrastructure and Defense (IDP) as well as strong demand for Mobile Products (MP). Moreover, the company benefited from broad-based demand in 5G handsets, Wi-Fi 6 and IoT products.
Segment-wise, mobile products (MP) revenues were $556 million that fell 16% sequentially but rallied 25.5% year over year. Notably, revenues exceeded the company’s expectations, driven by strong mobile and handset demand. Impact of global supply chain disruptions due to COVID-19 was also less than initially expected.
During the fiscal fourth quarter, the company witnessed robust traction for its 5G and LTE-Advanced Pro solutions. These are highly integrated and high performance solutions, which enable customers to reduce product footprint and accelerate products to market.
Additionally, Qorvo’s ultra-high-band solutions are being adopted by all leading 5G chipsets. Notably, the company’s mid-high-band and ultra-high-band 5G solutions were adopted by Samsung to support its Galaxy S20 platform during the fiscal fourth quarter.
Further, the acquisition of Decawave and integration of its radio technology has significantly expanded Qorvo’s capabilities and well positioned it to benefit from growing demand for proximity awareness, secure payments as well as secure access for smartphones, automotive and IoT.
IDP revenues declined 2.5% year over year to $232 million. However, revenues increased 12.1% sequentially primarily owing to infrastructure and Wi-Fi growth.
Notably, shipments of gallium nitride or GaN high-power amplifiers and small signal components improved during the quarter, driven by increasing deployment of massive MIMO antennas.
In the connectivity and broadband business, the company increased shipments of Wi-Fi 6 solutions and secured multiple cable amplifier design wins to support increased need for data to the home due to COVID-19 induced lockdowns. Notably, Qorvo expanded its global customer base for Wi-Fi 6 solutions, which includes front-end modules (FEM) and BAW filters, during the quarter.
In defense, the company expanded its portfolio of GaN-based solid state amplifiers for millimeter wave applications, including SATCOM radar and electronic warfare, with the launch of broadband 100 and 130 millimeter to 131 millimeter wave power amplifiers. Moreover, the acquisition of Custom MMIC enhanced Qorvo’s capabilities in the defense end-market.
In the programmable power management business, the company’s programmable ICs enjoyed solid momentum driven by robust growth in data center, computing and gaming consoles.
Non-GAAP gross margin expanded 140 basis points (bps) from the year-ago quarter’s tally to 49.6%. This can be attributed to lower manufacturing cost and favorable product mix.
Non-GAAP operating expenses increased 12.6% year over year to $181 million, due to acquisition related expenses.
Non-GAAP operating margin expanded 220 bps from the year-ago quarter’s level to 26.8%.
Balance Sheet & Cash Flow
As of Mar 28, 2020, cash and cash equivalents were $714.9 million compared with $1.09 billion reported as of Dec 28, 2019. Long-term debt was $1.567 billion compared with $1.569 billion in the prior quarter.
Net cash provided by operating activities was $214.3 million compared with $300.8 million in the previous quarter. Free cash flow during the reported quarter came in at $179.2 million, compared with $260.1 in the prior quarter.
During the fourth quarter, the company repurchased shares worth $125 million under the share repurchase program.
For first-quarter fiscal 2021, Qorvo anticipates revenues between $710 million and $750 million.
The guidance range for revenues is wider than normal due to COVID-19 induced uncertainties prevailing in the market. However, consistent growth in mobile 5G and infrastructure is anticipated to drive performance in first-quarter fiscal 2021.
Non-GAAP earnings are projected to be $1.13 per share at the mid-point.
Non-GAAP gross margin is anticipated to be 47.5%.
How Have Estimates Been Moving Since Then?
Estimates revision followed an upward path over the past two months. The consensus estimate has shifted 17.38% due to these changes.
At this time, Qorvo has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Qorvo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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